4 Things to Know about Corporate Bylaws [Free Template]

In a previous blog post, I described a corporation’s Certificate of Incorporation of as "the foundation upon which a corporation is built."

If the Certificate of Incorporation (also known as a "charter") is the foundation of a corporation, the corporate bylaws are the structure built upon that base.

While the Certificate of Incorporation provides for the general features of a corporation (though the Certificate of Incorporation may vary in length and complexity) and is filed with the state, the corporation’s bylaws are not filed on the public record.

Corporate bylaws provide the granular detail into how the corporation will operate and what its governance mechanics will be. They also describe the relationship among its Board of Directors, its officers and its shareholders.

The contents of a corporation’s bylaws may vary, depending upon which provisions the initial Board of Directors wishes to include, and can be amended by a majority vote of both the Board of Directors and stockholders at any time in the future.

Delaware’s corporate law provides for this flexibility, stating:

"[A corporation's] bylaws may contain any provision, not inconsistent with law or with the certificate of incorporation, relating to the business of the corporation, the conduct of its affairs, and its rights or powers or the rights or powers of its stockholders, directors, officers or employees[.]"  [source: delcode.delaware.gov] 

Please feel free to utilize this free corporate bylaws template.

Four Purpose of Corporate Bylaws

1) Bylaws and the Board of Directors:

A corporation's bylaws may often provide for terms governing the creation, structure and operation of its Board of Directors including, without limitation:

• The number of a corporation's Directors and how that number may be amended.
• The committees of the corporation's Board of Directors and the functions of those committees.
• The qualifications required of the corporation’s Board of Directors.
• The processes by which meetings of the Board of Directors or board committees are called (such as means of providing notice and required notice periods).
• The procedures governing Board of Director meetings (such as quorum requirements; voting percentages required for action; and the means by which meetings may be held, such as in person, via telephone and/or through web-based services).
• The circumstances under which voting proxies may be given to third parties in order to vote on a Director's behalf.
• The requirements for Directors to act by written consent without a meeting.
• The scope of indemnification of Directors and advancement of expenses in the event of litigation (though many corporations supplement Directors’ rights of indemnification with separate contractual agreements).

2) Bylaws and Officer Positions:

In addition, bylaws often set forth the titles of officers that will operate the day-to-day activities of the corporation (e.g., president, vice president, secretary). These provisions may also provide a broad description of the officers’ respective responsibilities and the means by which an officer can be replaced or new classes of officers can be created. In addition, among other things, the bylaws will detail the terms and conditions under which officers will be indemnified for actions taken in the role with the corporation.

3) Bylaws and Shareholder Matters:

The bylaws often contain a number of provisions governing shareholder voting and activities, including, without limitation:

• The means by which shareholder meetings are called.
• Any specific notice or record date requirements for voting.
• The percentage of shareholders required to approve a delineated action (if greater than a majority).
• The means by which a shareholder may provide a proxy to vote its shares.
• The means by which shareholders may vote by written consent rather than through a meeting.

4) Amendment of the Bylaws:

Unlike the amendments of a Certificate of Incorporation, which are subject to specific requirements under Delaware law, a corporation's bylaws may provide for amendment by the Board of Directors, by the shareholders or by both. 

Corporate bylaws are extremely important in the ongoing operation of a corporation, but the precise provisions of corporate bylaws can vary. Delaware law seeks to provide a level of flexibility in the operations and internal organization of a corporation, within certain parameters.

Source: http://delcode.delaware.gov/title8/c001/sc01/